SEBI bans trading on 331 'shell' cos

The Securities and Exchange Board of India (Sebi) has imposed trading restrictions on 331 listed entities identifying them as suspected shell companies carrying out illegal activities.

The crackdown is part of a broad crackdown on unlawful offshore transfers and tax evasion.

Though the regulator did not list out the illegal activities the companies may have been engaged in for which it has suspended them, the restrictions’ impact could be far reaching. The curbs include limiting trading in the affected companies to once a month and also in the trading of shares held by the promoters and directors of the companies.

The government has been taking on shell companies suspecting irregular transactions after a ban on high-value currency bills late last year, including transferring money abroad illegally, or "black money," and evading taxes.

SEBI banned these 331 companies from trading on the stock exchanges after the government named them on its list of shell companies, suspected to be involved in money laundering and tax evasion. The list was prepared by the ministry of company affairs and forwarded to the regulator for further action.

The regulator in a August 7 circular to stock exchanges said these companies will not be allowed to trade this month. Of the 331 firms, 162 are actively traded and the rest have already been suspended.

According to the Sebi circular, shares of these 331 companies will be kept in stage six of the Graded Surveillance Measures (GSM) with immediate effect. These companies would also be subject to independent audit and also a forensic audit to examine their financials.

“Under the stage VI of GSM framework, trading in these identified securities shall be permitted only once a month under trade to trade category. Further, any upward price movement in these securities shall not be permitted beyond the last traded price and additional surveillance deposit of 200 per cent of trade value shall be collected from the buyers which shall be retained with exchanges for a period for five months,” said the Sebi circular.

After the completion of the audits, if the exchanges do not find evidence that these companies indeed exist, they would be delisted. The companies will not be permitted to deal in any security on exchange platform and its holding in any depository account will be frozen till the delisting process is completed.

A majority of the 331 companies are allegedly facing probe for alleged tax evasion and corporate frauds and have been referred by the Income Tax Department and Serious Fraud Investigation Office (SFIO) to the corporate affairs ministry and Sebi for further action.

A large number of these firms are from West Bengal. Some of the prominent companies identified by Sebi include Parsvnath Developers, J Kumar Infraprojects, Adhunik Industries, Rei Agro, Birla Cotsyn, Zenith Birla, Winsome Diamonds and Jewellery among others.

Both REI Agro and Winsome Diamonds have been named as wilful defaulters by lenders. REI Agro owes about Rs 5,200 crore to Indian banks whereas Winsome Diamonds owes about Rs 4,000 crore to banks.

A number of firms named in the list said they were not shell companies and accused Sebi of tarnishing their image.